Islamic Finance

The

The talk about adopting an Islamic economic system has been unsophisticated, as has the talk about adopting an Islamic political system. The problem with such shallow understanding is that politics provides a framework for economic practices. One should not speak of transforming the system instantaneously. Rather, expert economists ought investigate the issues involved in a switch.

Islamic banking is a new and emerging field. While forces stemming from the dominant West historically have suppressed the principles of Islamic economics, today those principles are being revived. Colonialism has ended and oil money exists in the

How currency existed at the time of the Prophet and how it exists today have changed profoundly. Certain matters in Islamic economics might be affected by the transformation in currency practices. Around the time of the Prophet, all coins were made of precious metal. Early Islamic jurists made their decisions in strict adherence to the social context of the Prophet's time. They most likely were unaware of the behavior of highly volatile inflation because the value of metals relative to real goods changed little in that era.

Bay' al-salam is a sale in which the seller receives an advance payment for a deferred supply of goods.

The most crucial financial institutions in developing nations are their commercial banks. Development occurs well if banks use individuals' savings productively. Typically, conventional banks lure deposits with interest rates. Islamic banks, by contrast, do not guarantee a fixed return. While a majority of the world's economists link savings behavior with the offer of positive interest rates, Islamic economists link savings with income. It has even been suggested that there are religious motivations for saving. Muslims are of three sorts.

To transform the interest-based economic system to an Islamic one, a pricing mechanism must be developed to replace riba, and a stock exchange is needed to allocate resources equitably. Stock exchanges serve as financial intermediaries, determine the market value of firms, and offer numerous other services.